Non-domestic tax rates review: Barclay report

Section 4: Recommendations.

The 30 recommendations are set out below in full.

Measures to Directly Support Economic Growth.

1. A Business Growth Accelerator - to boost business growth, a 12 month delay should be introduced before rates are increased when an existing property is expanded or improved and also before rates apply to a new build property.

4.1 To stimulate growth and improvements to property a new incentive should be created to delay any rates bill increases as a result of investment.

4.2 Under the current system, as soon as a new property is built or an improvement/ expansion of an existing property takes place, the rateable value (and therefore rates bill) increases. A large number of ratepayers, of all sizes and across both the public and private sectors, claimed that this provided a disincentive and barrier to investment - and penalises ratepayers who make environmental improvements ( e.g. solar panels) ,face requirements to improve their properties as a result of regulation ( e.g. the addition of sprinklers) or invest in plant and machinery. This allows no time for the ratepayer to recoup any capital investments they have made before their higher rates bill applies.

4.3 We propose that a delay period of 12 months is introduced before rates bills are increased.

4.4 This would mean that new build property will not become liable for rates for the first 12 months, regardless of whether a tenant is found - a new incentive for those who build and occupy new build property. In the case of a speculative build, it will create a 12 month period where no rates are due, and thereafter empty rates relief would apply for a period, giving the developer time to find a tenant. For a new build property with an occupier from day one, that occupier would benefit from a 12 month rate free period to enable the business to recoup the costs of purchase and/ or investment in fitting out the property for 12 months.

4.5 Any investment in existing property would also result in a grace period.

4.6 This recommendation is intended to encourage owners/ tenants to improve their existing premises, invest in plant and machinery and to encourage the construction of new build premises thereby increasing economic growth, increase the tax base over time and raise more future revenue. It will also remove what many ratepayers see as a current penalty that exists to penalise them when they improve their existing property, even when they are required to do so by law.

4.7 Increasing the levels of empty property relief was suggested by some as the way to incentivise speculative build, but this alternative approach was chosen because it acts not only as an incentive to builders of new property, but also their tenants and those who chose to improve or expand existing property. Our recommendations on empty property relief can be found later in this section (recommendations 25 and 26).

4.8 If this recommendation is implemented, New Start relief, which currently offers relief for new build property, should be reviewed to consider whether the system for new build properties could be simplified.

Cost. It is broadly estimated that this measure will cost around £45 million per year.

Implementation. Under our revenue neutral remit this can be implemented in 2018-19.

2. There should be three yearly revaluations from 2022 with valuations based on market conditions on a date one year prior (the 'Tone date').

4.9 Currently non-domestic property revaluations normally take place every 5 years although the last revaluation took place 7 years ago in 2010. Revaluations come into force on the revaluation date, which is 1 April of the revaluation year.

4.10 At each revaluation the Assessor will seek new evidence on annual rents from non-domestic properties and use this to inform valuations. It is important for fairness that all evidence is taken from the same point in time so a fixed date known as the Tone Date is used. Currently the Tone date is 2 years prior to the revaluation date so for the 2017 revaluation, which came into force on 1 April 2017, the Tone date reflected property rents on 1 April 2015.

4.11 Although the impact of the 2017 revaluation did not fall within scope of this review, many ratepayers noted the impact of the prolonged period since the last revaluation in 2010 and the resultant shocks to the system when rateable values caught up with movements in property rental markets that had taken place since 2008.

4.12 There was a strong consensus among stakeholders that 3 yearly revaluations, with a Tone Date 1 year prior to the revaluation date, would provide a better timeframe. Halving the date between valuations being made and coming into force would have the advantage of more closely reflecting market trends and reducing volatility without being unduly onerous in terms of the additional administrative input that would be required from ratepayers, the Scottish Assessors and councils.

4.13 More frequent revaluations, taking place every 3 years (coupled with reducing the time between the Tone Date and the implementation date of the revaluation) will go a significant way towards reducing shocks that might otherwise take place at future revaluations, although they will not eradicate these entirely.

4.14 Although some respondents did suggest more frequent or rolling revaluations to us, there is some anecdotal evidence that changes in property markets are generally too modest over a 1 year period to make the process worth doing annually. Annual revaluations would also increase the administrative burden on both businesses to provide information and on the Assessors to process this.

4.15 A revaluation ahead of 2022 was considered, but ruled out, for the following reasons-

• A number of changes would first need to be put into place ahead of the next revaluation including movement of the appeals into the Tribunal Scotland structure;
• New powers and penalties to ensure robust data collection need to be created;
• Improvements to data provision and billing need to be put in place;
• It would be preferable for the appeals lodged against the 2017 revaluation to be largely cleared before another revaluation takes place, and;
• A tone date of April 2019 does not, we consider, allow sufficient time for preparation and would overburden the Assessors.

4.16 We strongly recommend that any move towards more frequent revaluations should be carried out in tandem with reforms to the appeal system to reduce the volume of appeals and speed up the process.

Cost. The Assessors have indicated that more frequent revaluations may increase their workload and require additional resources. We recommend that the Scottish Government begin early discussion with the Assessors about resources to ensure that this can be delivered.

Implementation. We recommend that the next revaluation should take place as planned in 2022 and thereafter revaluations should take place every 3 years from 2025.

3. The Large Business Supplement should be reduced.

4.17 The Large Business Supplement ( LBS), which we note elsewhere in this report could be better named the Large Property Supplement, is currently paid by all property with a rateable value over £51,000. The rate in Scotland is currently 2.6p, while in England it is 1.3p.

4.18 We believe that the LBS should be reduced so that it is in line with the rate set in England.

4.19 A case can be made both for and against this recommendation. For example, the benefits to individual ratepayers would be very diffuse. Even for a ratepayer that occupies a property with a rateable value of £100,000, a 0.1p change in the Large Business Supplement would only reduce their bills by £100 per annum. Viewed in isolation, it would be hard to argue that such a move is the best way to spend public funds.

4.20 However, our decision to recommend the supplement is reduced is in the context of current Scottish Government policy to ensure that Scotland is the best place to do business in the UK (see discussions in sections 3 and 5).

4.21 Several consultation responses raised the issue of the rate of the Large Business Supplement. Most noted the difference with England. In talking to ratepayers and business groups, we have noted a widely held perception that the difference in Large Business Supplement means that Scotland is not as competitive a place for businesses as England currently is. A large majority of the tax base - in terms of tax revenue received at least - sees their (pre-relief) bills determined by a higher tax rate in Scotland than they do in England:

Table 4.2 (repeated from page 30) - Breakdown of the tax base by size of property (measured in rateable value - RV).

RV Band	Total Properties		Total Rateable Value		Total Gross Bills
	No.	%	£m	%	£m	%
Zero Rated	7,000	3%	0	0%	0	0%
£1 to £18,000	174,000	75%	980	13%	460	13%
£18,001 to £51,000	30,000	13%	910	12%	430	12%
£51,001 plus	22,000	9%	4,670	63%	2,300	64%
Designated Utilities	<100	0%	800	11%	390	11%
Scotland total	233,000	100%	7,360	100%	3,570	100%

Source: Review Group analysis of the Valuation Roll (April 2017).

4.22 The costs of changing the Large Business Supplement are significant. To set the rate to 1.3p instead of 2.6p would cost the Scottish Government approximately £60 to million to £65 million per annum.

4.23 Maintaining a generous relief package and reducing the Large Business Supplement to ensure that ratepayers face the same (pre-relief) tax bills in Scotland as in England would mean that, from a rates perspective, the Scottish scheme ensures that Scotland is the best place to do business in the UK. Scotland's policy framework is designed to achieve this aim, and the Scottish Government has already foregone significant revenues in order to achieve it, however the presence of the 2.6p LBS rate is damaging perceptions that Scotland's system has achieved this aim.

4.24 We therefore recommend that the Scottish Government should reduce the LBS to 1.3p in 2020-21, and sooner if it becomes affordable to do so.

Cost. It is broadly estimated that this measure will cost around £62.5 million in 2020-21 (each 0.1p of the large business supplement raises approximately £4.8 million).

Implementation. Under our revenue neutral remit this can be implemented in 2020-21.

4. A new relief for day nurseries should be introduced to support childcare provision.

4.25 We believe that one of the most important ways to supporting economic growth is ensuring that the workforce is supported by convenient, affordable and accessible childcare. This applies to carers of young children across the public, private and third sectors. Although rates are only one overhead for this sector, we believe a reduction in the rates burden may help enable more of the workforce to return to work after starting a family. As such, we recommend that childcare nurseries benefit from a new 100% relief from 2018-19. This should be evaluated after 3 years to ensure that benefits of the relief have been felt, including by parents and carers.

Cost. This relief will cost around £7 million per year.

Implementation. This can be implemented in April 2018.

5. Town Centres should be supported by expanding Fresh Start relief.

4.26 A common theme that emerged during our review was the continuing pressure on town centres. It was generally acknowledged that there were a number of reasons for this, including changes in shopping habits with availability of parking, pedestrianisation, the growth of out of town shopping and the emergence of the digital economy. As a result, changes to the rating system alone cannot address the issue, although there is some merit in varying rates in town centres and assessing the impact this has. Councils would be the best placed to assess how such changes might best be implemented in their areas.

4.27 Councils have, under the Community Empowerment (Scotland) Act 2014, a wide ranging power to reduce or remove rates from properties within their area, although to date we are only aware of 3 such schemes. We believe councils should be encouraged to use this power more widely.

4.28 In the short term, Scottish Government should consider expanding its Fresh Start relief to help rejuvenate town centres with high vacancy rates. Currently this relief offers 50% rates relief for the first 12 months to those who take on certain long term empty properties, many of which are located in town centres. Extension of this relief for a fixed period to incentivise occupation of vacant town centre premises.

4.29 Additionally, the Scottish Government should consider expanding the categories of properties that can qualify for Fresh Start relief so that all listed property can benefit. Recommendation 25 reduces the relief for listed empty property so this would provide an alternative incentive for those who take on such empty property. We further propose a new power to enable councils to impose an additional levy on rates in certain limited circumstances, as set out below. The size of this levy might be similar to that already applied in the case of Business Improvement Districts.

4.30 This new power would require primary legislation and so cannot be implemented immediately. Once it is, we recommend that councils be invited to submit to the Scottish Government suggested pilot schemes, from which the Scottish Ministers might select no more than 3 which, if approved, would allow a council to levy a modest supplement on out of town businesses (perhaps retail) or predominantly online businesses (such as distribution centres). The amounts raised would then be used to support one or more town centres in the same council area, either by the council using the extra rates revenue raised directly to benefit the town centre(s) identified or by the council using its existing powers to reduce rates either right across the town centre(s) or on certain facilities within the town centre(s) such as car parks. Subject to a formal assessment of whether such schemes are successful, they could then be considered for roll out more widely across Scotland.

Cost. As one example, to expand Fresh Start relief could cost up to £2 million by extending the relief offered from 50% to 100% for the first year and reducing the qualifying period that the property must be empty from 12 months to 6. This relief should be in place for at least 2 years before consideration is given to whether pilot schemes are merited.

In the longer term, allowing a limited number of councils to levy rates on out of town properties and use this to fund relief in town centres as part of a pilot would be revenue neutral.

Implementation. Fresh Start relief could be expanded from 1 April 2018.

Enabling councils to levy a supplement on out of town properties would require primary legislation and so could only be introduced in the longer term. Appropriate safeguards would need to be in place to ensure the level of supplement was capped at a reasonable level and that a robust evaluation took place before the scheme was introduced more widely.

6. There should be a separate review of Plant and Machinery valuations with particular focus on renewable energy sector valuations and statutory improvements to property including sprinkler systems.

4.31 Currently plant and machinery valuations are based on the recommendations of the Wood Committee which reported in 1993 and 1999 taking around 15 months and 3 years respectively to reach conclusions. Given the passage of time since that Committee reported and the recommendations of the Wood Committee itself, we consider that it is now time to undertake a further review to assess whether these methods are still reflective of technological advances and emerging industries, for example renewable energy generation, and whether it is appropriate that all regulatory requirements should be included in the valuation.

4.32 This review should be technical in nature and involve valuation and industry expertise.

Cost. There will be modest administrative costs associated with supporting the review.

Implementation. This review can commence in the short term and allowing reporting and implementation of any resulting recommendations in time for the next revaluation in 2022.

7. The effectiveness of the Small Business Bonus Scheme should be evaluated.

4.33 The Small Business Bonus Scheme ( SBBS) was introduced by the Scottish Government to support economic growth. Considerable anecdotal evidence was presented to us to suggest that it has provided vital assistance to many small businesses. However, the case was also made to us that, as the policy has been in place for a decade with over £1.3 billion of public funds committed (see Chart 5, below), the time was right for it to be formally evaluated.

Chart 5: Small Business Bonus Scheme recipients and relief (£m), 2008-09 to 2016-17.

Source: Scottish Government, Non-domestic Rates Relief Statistics for Small Businesses in Scotland 2016.

4.34 A commonly made point to us was that some small businesses in receipt of SBBS would be happy to make a modest annual contribution to the local services they receive (amounts of £500 or £1,000 a year depending on size was suggested to us by several current SBBS recipients). One participant in the consultation process even referred to some local villages where no businesses paid any rates as 'rates deserts' and others noted businesses who paid no contribution to local services were to some extent disconnected with their local council and community as a result.

4.35 Some misuse of the Scheme is also apparent (see recommendation 22).

4.36 An evaluation should consider recent policy developments in Northern Ireland, where the equivalent relief was evaluated but found to be misdirected and it was suggested it be replaced with a relief more targeted on town centres. It should therefore include a discussion of whether the current scheme could be adapted to better support towns or include some element of incentivisation in order to promote desirable economic activities (such as paying the living wage, carrying out investment or offering modern apprenticeships).

4.37 The evaluation should also consider i) how the SBBS can best be targeted to support local investment, employment and growth (see Annex C4) and ii) the merits of giving councils some autonomy in the design of any reformed SBBS in their areas (see Annex C5).

Cost. There will be modest costs associated with an evaluation if this is carried out independently. The costs will depend on the breadth and scope of the review carried out, but should not be more than a few tens of thousands of pounds.

Implementation. This should be a substantive review, taking on board the views of ratepayers (including those who became newly eligible for the relief following the expansion of the scheme in 2017) and should be initiated as soon as possible with any findings implemented in time for the next revaluation in 2022.

Measures to Improve Ratepayer Experience and Improve Administration of the System.

4.38 The measures listed below are generally revenue neutral or carry modest administrative costs to the Scottish Government or public sector, however they would all improve or simplify the system for ratepayers. Taken together, they would improve information about the current system; ensure information is better in future; improving billing; and improve the appeal system.

8. The Scottish Government should provide a 'road map' to explain changes to the rating system and should consult whenever possible on those changes, prior to implementation.

4.39 Many ratepayers made a case to us that the Scottish Government must consult on changes to the rates system and involve ratepayers in decision making. Whilst we agree with this in principle, we recognise that the Scottish Government may require, on occasion, to make changes to the rates system at short notice to reflect changing financial circumstances or policy priorities.

4.40 However, we recommend that the Scottish Government should set out clearly a road map for ratepayers to clarify what expected changes are happening and why and should issue timely annual updates of this road map. This will increase certainty for ratepayers and enable better forward planning.

Cost. This is an administrative measure.

Implementation. This should be put in place in time for the start of the 2018-19 financial year.

9. There should be better information on rates made available to ratepayers - co-ordinated by the Scottish Government.

4.41 There is a widespread view among many ratepayers, particularly those running small or medium sized businesses, that it is difficult to understand how their rates bills are calculated or how the rates they pay are spent by their council. However we were heartened by the number who expressed their desire for further knowledge.

4.42 All ratepayers should have access to clear, concise information on the roles and responsibilities of all those involved in operating the rates system; on the tax they can expect to pay and on what this is used for by councils.

4.43 We recommend that significant improvements are made in the information given to ratepayers by all public bodies involved in the rating system. This should include measures to ensure ratepayers understand the link with rents and that when negotiating rents with the landlord the rent paid by them, and others, may impact on the amount they pay in rates and on relief entitlement. We are also aware of some advisors who will charge fees to ratepayers for services which are available free of charge, such as on how to apply for relief, or who advise them to withhold information and appeal their valuation. This is often so that they can recieve a portion of the "savings" that the ratepayer may have received in full had they not withheld information and had the correct valuation from the outset. Educating ratepayers will raise awareness and help them avoid paying for services they can get for free.

4.44 The Scottish Assessors need to improve the information available on rateable value calculations and methodologies (this is discussed in more detail in recommendation 11). Councils need to improve the information they provide to ratepayers about how rates paid fund local public services and about any local relief policies. The Scottish Government needs to improve the overarching information made available publicly, such as on national reliefs and the legislative framework.

4.45 Information improvements should relate not just to current methods of disseminating information (for example by updating current websites), but also to the introduction of other formats such as info-graphics and video formats to provide visual information for those who prefer these formats and where information can be more clearly presented in this way.

4.46 The current rates calculator offered should be adapted to allow ratepayers to model scenarios and estimate bills for forward years rather than for just the current financial year (subject to caveats that inflation rates and Government policies may change). It should allow a ratepayer to enter in estimated inflation figures to predict the impact these may have on the poundage in forward years or the impact that rent increases may have on their rateable value (and therefore bill) at future revaluations.

4.47 Language and terminology also need to be reconsidered as it is clear that many ratepayers (particularly cited to us by those who run small or medium sized businesses) find the language currently used confusing. As one example, the Large Business Supplement is paid by some small or medium sized businesses and as set out in recommendation 3, it should be renamed as the "large property supplement".

4.48 We feel it is crucial that all the work described above begins early as a priority and an Implementation Group to facilitate this should be set up and chaired by a designated Scottish Government lead official with clear deadlines for completion.

4.49 Ratepayers and their representative bodies should have opportunities to feed into all these developments to ensure all information is fit for purpose and for its intended audience.

4.50 No organisations representing minority, disadvantaged or ethnic ratepayers made representations to us. The Scottish Government, councils and Assessors should therefore consider whether engagement with those groups is needed when developing information provisions.

Cost. There will be minor administrative costs associated with these measures. Provision of clear and relevant information will not only better inform ratepayers but also free up more of their time to focus on their core activities.

Implementation. These measures can be implemented in the short term.

10. A full list of recipients of rates relief should be published to improve transparency.

4.51 Currently it is relatively easy for anyone to establish the rateable value of a property, provided it is on the valuation roll. Recommendation 28 suggests that in order to promote openness and transparency far more non-domestic property should appear on the valuation rolls.

4.52 However the valuation rolls only show part of the picture about who pays rates and what the actual rates bill is. Whether or not a property is in receipt of relief is currently not transparent and elsewhere in this report we give some examples of erroneously awarded relief. Equally there will always be those who fraudulently claim relief and those who are entitled to claim relief but are unaware that they may do so.

4.53 We did find online published details of relief awarded by some councils (Edinburgh and Moray) but believe this should be much more readily available and a national list of all relief awarded for all properties should be published.

4.54 This will have several benefits. It will help ratepayers understand reliefs better and raise awareness of what reliefs are available to those who do not claim. It will go some way to ensuring Council decisions on relief (including to ALEOs) are subject to additional ratepayer scrutiny and act as a deterrent for avoidance.

4.55 While some may seek to utilise these lists to target those who are potentially entitled to relief but are not claiming, as part of our recommendation on improved information to ratepayers we recommend highlighting that relief is free to apply for and to be wary of anyone who offers to apply on their behalf.

Cost. None. This can be managed administratively.

Implementation. This should be done as soon as possible and no later than 1 April 2018.

11. A "rateable value finder" product should be used - to identify properties that are not currently on the valuation roll, so as to share the burden of rates more fairly.

4.56 During the course of our work, we learned that there are commercial companies in the UK who will identify property which should be on the valuation roll, but is not.

4.57 Premises that are not on the valuation roll, but should be, will not be making any contribution to local services and any measure that can ensure they do make the same contribution as other ratepayers will increase fairness in the system and raise additional revenues to fund local services.

4.58 To the best of our knowledge these services are not used in Scotland, but we recommend that their use is implemented in Scotland immediately.

Savings. Based on experience in England this may raise around £1 million per year if applied in Scotland.

Implementation. This is an administrative measure that can be introduced in the short term.

12. Assessors should provide more transparency and consistency of approach. If this is not achieved voluntarily, a new Scotland wide Statutory Body should be created which would be accountable to Ministers.

4.59 Our assessment, based on the information we have garnered during our consultation, is that the Scottish Assessors are well qualified for what they do and that they generally carry out their functions diligently and to a high professional standard. However, many ratepayers expressed a view to us that the Assessors should be more open and transparent and also that they could and should provide more consistency, both in their valuation methodology and in the level of service they provide across Scotland.

4.60 We also note that the Assessors carry out other functions, such as valuation of domestic property for council tax purposes and maintenance of the electoral roll, both of which are outwith the remit of this Group.

4.61 The current structure of the Assessors provides a good model of efficiency and has a key strength in its local knowledge so we propose no major structural change. It is also a strength of the system that the Assessors are independent of Government and value property based on market evidence without political interference. These principles should remain in any reform.

4.62 However, we believe that changes do need to be made to the accountability and behaviour of the Assessors.

4.63 We therefore recommend the following changes:

a) All ratepayers should have access to consistent levels of service and advice, regardless of where they are located in Scotland;

b) Assessors should consider an account manager based approach with named individuals in an Assessor's office given the role of key contact for individual sectors or property types within an individual area;

c) Where local practice notes are used for valuation of any property, these must be made available online to all ratepayers;

d) Where the Assessors propose to change valuation practice notes this must be done in consultation with relevant external bodies and draft notes must be published online for comment for an appropriate period before they are finalised;

e) The point at which new build property is added onto the valuation roll should be consistent;

f) The Scottish Assessors Association ( SAA) should produce and publish an annual report on valuation practice and outcomes. This is particularly important in a revaluation year where the report should be substantive and highlight the average and range of movements in rateable value across council areas and sectors, any changes to valuation methodologies and summarise engagement with national and local trade bodies. Outside of revaluation years, a shorter summary report should be produced;

g) Assessors should work through the SAA to standardise the level of service they provide, in particular to assist those ratepayers looking to build new or improve existing property to help them determine the potential estimated rateable value that will result;

h) The Assessors should provide more information on the evidence used at each revaluation to support valuations. While we appreciate that this will require detailed consideration in terms of what can be made available within the boundaries of data protection and commercial sensitivity, at the minimum ratepayers should be informed which comparator rental properties were used to inform their valuation;

i) Appointments to the SAA should be more transparent, and;

j) Minutes of meetings with sector representatives should be published (with any commercially sensitive data redacted as necessary).

4.64 The above could be achieved by giving more powers to the SAA to enforce, making the SAA a Statutory Body (with regard to the non‑domestic valuation element of the Assessors function) reporting to the Scottish Ministers.

4.65 Alternatively, the SAA could voluntarily introduce these changes. That would ensure that they are implemented at the earliest opportunity. If the SAA agrees, it should publish, as a first step, by June 2018, a proposal outlining how it will implement the above principles.

Cost. There will costs associated with these measures as additional resource may be needed by the Assessors.

Implementation. This is a medium term measure as legislative change may be needed. However, it is possible that Assessors may adopt many of these suggestions voluntarily without the need for legislation and that would be our preferred course. Should the Scottish Government choose to make the SAA a Statutory Body with enforceable powers over all Assessors and with Ministerial Accountability, there should be wide consultation with ratepayers over the nature of this.

13. The current criminal penalty for non‑provision of information to Assessors should become a civil penalty and Assessors should be able to collect information from a wider range of bodies.

4.66 We are of the view that ensuring valuations are correct from the outset is key and benefits everyone. Whenever possible ratepayers should be paying the correct amount from the start and should not rely on the sometimes costly and lengthy appeals process to ensure the rates paid are correct. Having the correct value from the start gives the ratepayer certainty over rates that will be due, provides the Scottish Government with certainty over income levels and reduces administration on ratepayers, Assessors and the Appeal system and ultimately the legal system by reducing the need for appeals. Given the sheer volume of appeals, it is critical that improvements are made to reduce the need for appeals (see also recommendation number 19).

4.67 Considerable evidence was presented to us to indicate that the provision of information by ratepayers to Assessors to enable Assessors accurately to calculate rateable values was often poor and that this happened for various reasons, including where ratepayers were advised to do so by a professional rates advisor (who stood to gain a portion of any reduction in rates paid following a successful appeal).

4.68 The lack of visibility of some Assessors was also cited as a reason for withholding information and it was noted by some ratepayers that they had a very low awareness of who the Assessors were and why it was important to provide them with the necessary information. The Assessors and the Scottish Government should work to improve understanding of roles and responsibilities and why providing the necessary information upfront is in everyone's interest.

4.69 Currently Assessors only have powers to request information from a limited number of bodies/ individuals including the owner and occupier of the property. In order to facilitate better information provision, the powers of the Assessors should be extended to allow them to request information from a wider a range of bodies and individuals to help inform accurate valuations. This list should be extended in consultation with the Assessors but may include architects, builders, construction firms etc.

4.70 The current penalty for non-provision of information is a criminal penalty and the general view expressed to us was this was very rarely, if ever, utilised. We recommend that this power should become a civil power and should initially be introduced as a fixed fee, but eventually should become linked to a percentage of rateable value to ensure it is proportionate and reviewed regularly to ensure the penalty acts as a disincentive for withholding information. It is not the intention that this penalty be used to raise new revenue, but rather that it acts as a deterrent for withholding information and incentivises full disclosure of information and reduces the volume of appeals. In this way, it should ensure that the appeals system sees a reduction in the number of appeals, and so is able to cope with more frequent revaluations.

4.71 Finally, we heard evidence that many public sector ratepayers tend to appeal by default and we recommend that the Scottish Government considers writing to public bodies to make it clear that they are expected to fully engage with Assessors and provide any necessary evidence to them, rather than rely on the appeals system.

4.72 Recommendation 16 creates a new penalty for non-provision of information to councils.

Cost. These measures will not carry any additional costs. It is hoped that, when combined, they may lead to modest savings by reducing the costs associated with the appeals system.

Implementation. These are a mix of administrative options that can be introduced in the short term, such as encouraging the public sector to provide better information. Other measures, including a new penalty, will require legislative changes that can be introduced in the longer term.

14. Standardised rates bills should be introduced across Scotland.

4.73 Currently each of the 32 Scottish councils issues bills to ratepayers using a range of commercial billing software systems. Some ratepayers cited inconsistency in billing across Scotland. Others noted that different bill formats create confusion where ratepayers hold multiple properties across different council areas with a resultant administrative burden in managing the different formats.

4.74 We recommend that a working group be set up, with appropriate council and ratepayer representation, to ensure that as far as possible rates bills follow the same format right across Scotland. And these standard bills should be available in time for bills issued in 2019‑20 financial year.

4.75 While there is already a small element of shared services in Scotland where 2 councils use systems to bill on behalf of other councils, we recommend that all councils be encouraged to work together as contracts are renewed to ensure a common billing system can be implemented across Scotland. Not only should there be savings from joint procurement of, and support for, software system(s) but this should also facilitate knowledge sharing. We have no desire to see councils lose autonomy over local decisions nor of staff being relocated. A single system would allow better data sharing, for example fraud could be more readily spotted and potentially allow joint enforcement action where fraud occurred across boundaries.

4.76 For ratepayers, the key benefit would be standardisation. Some may also benefit from a reduction in form filling. For example, a ratepayer with properties across 32 council areas could opt to receive a single itemised bill for all properties in Scotland and make a single payment on an online portal which is then apportioned to all 32 councils.

4.77 Standardisation would be expected to improve the quality of information held by the Scottish Government which in turn should enable it to undertake more accurate modelling (for example of the costs of relief) to ensure that assistance can be better targeted.

Cost. There will be modest costs associated with the necessary software charges. Some of these costs would be offset by reduced administration costs as more councils sign up for online billing and payment over time. The eventual move to a single billing system could be minimised if councils gradually migrate to a single shared service as local contracts come up for renewal instead of procuring new systems.

Implementation. The move to a single billing system can be largely done administratively as contracts are renewed.

15. Ratepayers should be incentivised to sign up for online billing where available except in exceptional circumstances.

4.78 Rates bills still tend to be posted out and feedback suggests that technology is lagging behind the online billing and payment systems used for paying most other bills.

4.79 To reduce administration costs for councils associated with printing and posting out bills, we recommend that councils move rapidly to digital billing and online payment where these facilities already exist or are planned to roll out in coming years.

4.80 Where facilities exist to apply online, relief generally should only be available on the condition that a ratepayer signs up for online billing and direct debit (or other automated) payment.

4.81 We recognise that some ratepayers live in areas with no or very limited digital connectivity. In these cases, we recommend that councils have the power to allow an exception to be made. However, we suggest that the majority of ratepayers should have access to this service by the next revaluation in 2022.

Cost. There should be no additional cost to this measure and savings should be made for councils in reduced administration costs as more sign up for online billing and payment over time.

Implementation. It is hoped that many will sign up to these services voluntarily. Although legislative changes could force the requirement for online billing and payment, that option may not suit all ratepayers so a softer approach is the preferred option.

16. A new civil penalty for non-provision of information to councils by ratepayers should be created.

4.82 In a small number of cases, ratepayers may fail to inform a council about a change of circumstances (such as a change in the occupier of a property) or may provide false declarations when applying for relief. An example of where this could apply could be where a property is a self-catering let but the owner/ tenant receives bills for council tax, rather than non-domestic rates. New civil penalties should be available to councils in such cases with both the owner and tenant of any property held liable. There should be consultation with interested parties before the level(s) of these penalties are set.

4.83 It is not the intention that this penalty is used to raise new revenue, but rather that it acts as a deterrent for withholding information .

4.84 Recommendation 13 deals with penalties for non-provision of information to Assessors.

Cost. This will not carry any additional costs.

Implementation. These new penalties will require primary legislative changes that can be introduced in the longer term.

17. Councils should make faster refunds of overpayments to ratepayers.

4.85 A small number of ratepayers noted that councils sometimes take excessive periods (up to 6 months in one case) to refund overpayments to ratepayers.

4.86 All ratepayers should be entitled to a prompt repayment within a 30 working day target. The Scottish Government should monitor this to ensure councils' performance meets this target.

Cost. We hope that councils will all voluntarily adopt and follow a 30 day target. If they do not do so, the Scottish Government should make this a Statutory target, monitored as appropriate with interest payable by councils should the 30 day period be exceeded.

Implementation. These measures can be implemented in the short term if adopted voluntarily. If legislation is needed to force councils to comply, this will delay implementation.

18. Councils should be able to initiate debt recovery at an earlier stage.

4.87 Just as ratepayers should receive prompt payments from councils, councils should expect the same from ratepayers. Currently councils cannot take enforcement action for non‑payment of rates until after 30 September in any year. This is in contrast to council tax whereby enforcement action against citizens commences if the first planned instalment is missed.

4.88 These two local taxes should be brought into line and rates should be recoverable if no payment is received by the date of the first planned instalment.

Cost. There should be no cost to this measure.

Implementation. This requires primary legislation so is a longer term measure.

19. Reform of the appeals system is needed to modernise the approach, reduce appeal volume and ensure greater transparency and fairness.

4.89 There is already some reform of the appeals system underway and the valuation appeal panels are planned to transfer into the Tribunals Scotland structure at the next planned revaluation in 2022.

4.90 Significant numbers of appeals have also already been lodged against the 2017 revaluation and these will require to work their way through the current appeal system.

4.91 We were surprised to hear from many ratepayers, including those in the public sector, that they tend to lodge appeals as a matter of course. Whilst we agree that everyone should have a right of appeal, the resulting volume of appeals inevitably clogs the system and measures should be taken to reduce the number of appeals. The move to more frequent revaluations where valuations more closely reflect current markets is one of a number of measures we have recommended which are aimed at reducing the level of speculative appeals so that where genuine errors are made these can be rectified quickly. We believe it is important to do so.

4.92 We recommend that the Scottish Government incorporates the following principles at the point at which panels transfer to Tribunals Scotland.

a) Appointments to panels, including the appointments of Chairs and Secretaries, should be made through an open and transparent process;

b) Diversity on panels should be sought, so far as possible, when appointing members, Chairs and Secretaries;

c) Consideration should be given to introducing a basic remuneration for panel members and Chairs;

d) Appointments should be for fixed terms, with scope to renew at regular intervals;

e) Panel members should have a clear code of conduct to follow, including a process for registering conflicts of interest;

f) There should be no geographical limit to the area in which panel members must live and/ or work;

g) There should be mandatory formal training for panel members at regular intervals;

h) All hearings should be held in public and advertised in advance;

i) The appeal process should be as streamlined as possible and encourage prompt and full exchange of all information ahead of formal hearings;

j) There should be a process for fast tracking of appeals;

k) Guidance for those appearing before committees under the new structure should be available well in advance of the structural change and this should be regularly reviewed;

l) All panel decisions should be published online;

m) Appeal panels should also hear assessment appeals against councils decisions on relief eligibility;

n) Panels should have a power to refer complex cases direct to higher Tribunals/ courts, and;

o) Fees should be considered for lodging an appeal to cover any costs associated with the structural change. If introduced, a fee should be proportionate and linked to rateable value.

4.93 One additional key principle that should be introduced is that panels should have the power to increase rateable value at an appeal hearing where evidence has emerged to support this.

Cost. There will some associated costs primarily through offering remuneration to panel members and Chairs. These are difficult to quantify at this stage as the process of moving into the Tribunals Scotland system is still some years away.

Implementation. These are long term measures, which can largely be done administratively as part of the planned move to Tribunal Scotland and we recommend they should be implemented in time for the next revaluation in 2022.

Measures to Increase Fairness and Ensure a Level Playing Field.

20. A General Anti-Avoidance Rule should be created to reduce avoidance and make it harder for loopholes to be exploited in future.

4.94 There will always be those who seek to avoid tax and they do so to the detriment of the majority who abide by the rules.

4.95 Individual measures can be taken to close known tax avoidance schemes, but an additional general power provides more flexibility if new schemes arise.

4.96 Much tax legislation includes a general anti‑avoidance rule ( GAAR) which gives greater power to billing and collection authorities (which in the case of rates would be councils). The power can apply to both those who actively avoid and those who promote avoidance schemes. The power should also allow for additional individual measures to be introduced quickly to remove any new avoidance schemes which occur and to create new penalties for avoidance.

Savings. The exact value of rates lost through avoidance is not known as no data are collected. Some avoidance occurs when ratepayers abuse measures which have been put in place to support genuine ratepayers although it is not always possible to differentiate between the two. Several councils informally estimated that up to 1% to 2% of rates income was lost to tax avoidance. While it is unlikely that any tax system will be 100% compliant, if it were assumed that half of all avoidance were reduced by these combined measures, this would raise £21 million per annum.

Implementation. This is a longer term measure as legislative change is required to create the new rule along with measures listed separately below to close known loopholes.

21. To counter a known avoidance tactic, the current 42 days reset period for empty property should be increased to 6 months in any financial year.

4.97 There will always be those who exploit loopholes to reduce the tax they pay and this is unfair on those who do pay.

4.98 We understand that a current avoidance tactic for empty property is to temporarily bring the property back into use for a short period (this may include using the property to store a small amount of goods relative to its size and/ or signing 42 day leases). Under current legislation this resets the empty relief period and allows ratepayers to take advantage of the more generous empty property relief entitlements designed for short term empty properties over and over again.

4.99 We therefore recommend that empty property relief for all classes of property be changed to increase the reset period to require a period of 6 months occupation in any financial year before the relief can be reset. This 6 month period may be a discontinuous period to facilitate use of empty property for pop up or short term uses.

4.100 Further recommendations are made on empty properties in recommendations numbered 5 and 26.

Savings. Savings will occur from reduction of avoidance overall. To avoid double counting the total of all avoidance savings are captured under recommendation 20 that a general anti avoidance rule be created.

Implementation. This is a longer term measure as legislative change is required.

22. To counter a known avoidance tactic for second homes, owners or occupiers of self-catering properties must prove an intention let for 140 days in the year and evidence of actual letting for 70 days.

4.101 It was brought to our attention that an avoidance tactic used by some property owners to avoid payment of council tax on second homes is to claim that the property has moved from domestic use (liable for council tax) to non-domestic use as a self-catering property (and liable for non-domestic rates). An application is made for SBBS and no rates are payable so the contribution to local services becomes zero. Currently the criteria to switch from the domestic to non-domestic use is fairly loose and only requires an intention to let out the property.

4.102 We recommend that the criteria for self-catering should become more strict, as they are currently in Wales, and require the owner to demonstrate that the property has been actually let for 70 days in any tax year and also is actually available to let for 140 days in the same tax year before they can move onto the valuation roll and that if they cannot so demonstrate they should remain liable for council tax.

4.103 In addition, any application for SBBS from a self-catering property should require the ratepayer to provide similar information to the council on actual let periods before relief can be awarded.

4.104 Over 10,000 properties classed as self-catering claimed SBBS at an annual cost of over £9 million in 2015. As the scheme has expanded since 2015, the value of these claims has likely grown. As Chart 6 shows, this means that self-catering claims make up around 7% of total SBBS costs.

Chart 6: Percentage of SBBS (in £) awarded by type of property (2015).

Source: 2015 Billing System Snapshot (provided by councils to the Scottish Government).

4.105 Clearly, many of these will be genuine self-catering properties and it is not possible to estimate how many are second homes that are not actually let out.

Savings. Savings will occur from reduction of avoidance overall. To avoid double counting the total of all avoidance savings are captured under recommendation 20 (creation of a general anti avoidance rule).

Implementation. This is a longer term measure as legislative change is required.

23. The Scottish Government should be responsible for checking rates relief awarded, to ensure compliance with legislation.

4.106 Currently the rates system is administered by councils. We do not propose any fundamental change to that system.

4.107 However, we heard about a small number of examples where charity relief had been awarded incorrectly in Scotland, for example councils are awarding charity relief to some of the trading arms of the parent charity. Such profit making entities are not entitled to relief but are being awarded it nonetheless. This is a compliance issue rather than a recommended change. We do not suggest that this problem is wholesale nor that councils do not manage the rates system effectively. But we recommend a formal review of the provision of charity relief in their areas to ensure that relief ceases to be provided to charities' separately established trading arms and to correct any errors which have arisen.

4.108 As there are over 100,000 premises in receipt of relief in Scotland it has not been possible for us to analyse each and to determine whether every one of those individual relief awards are correct. We believe as indicated that councils do manage the rates system effectively. However for example, if only 0.5% of the £660 million of relief awarded in Scotland was erroneous then this would equate to over £3 million in savings that could be found.

4.109 We believe that to increase fairness where relief has been erroneously awarded this should be corrected and propose that the Scottish Government should write to councils to remind them of rules around relief award (including for profit making arms of charities) and encourage them to audit current recipients. This recommendation is not about change, but is about ensuring compliance with the current system.

4.110 In addition, the Scottish Government receives data on relief awarded which is provided by councils to help with modelling and income estimates. This exchange of data should be a two way process (subject to any necessary data sharing agreements) and where the Scottish Government spots anomalies it should notify councils to ensure relief is targeted at those who fit the required criteria.

Savings. This will not carry any additional costs but could potentially lead to savings of up to £3 million per annum.

Implementation. This is an administrative measure that can be introduced in the short term and Scottish Government should begin to action this in 2017.

24. Charity relief should be reformed/restricted for a small number of recipients.

4.111 When the annual costs of all rates reliefs are considered, charity relief costs have increased significantly in recent years, as shown in Chart 7 below - which looks at relief expenditure over the current revaluation cycle. Over this period, the amount of charitable relief grew at an annualised rate of over 6%. ^[10]

Chart 7: Annual value of different rates reliefs over the 2010 revaluation cycle.*

Source: 2015 Billing System Snapshot (provided by councils to the Scottish Government).

4.112 The reasons behind this trend are uncertain, but as there has been no change to the rules around award of relief, we know that the trend is in part related to avoidance tactics (discussed later) and/ or the creation of ALEOs by councils.

4.113 Charity relief which is almost entirely funded by the Scottish Government (it funds at least 95% of the costs) is awarded by councils to ALEOs which the councils themselves have created to deliver services which councils previously provided directly.

4.114 ALEOs have charitable status which qualifies them for charity relief.

4.115 ALEOs are some of the biggest recipients of charity rates relief in Scotland with councils 'self-awarding' 15-20% of all charitable rates relief to these bodies which they have created. The prevalence of ALEOs within certain councils is also unevenly distributed across Scotland.

4.116 If the council itself were still providing a service directly, it would pay rates, but by creating an ALEO rates relief becomes available and the cost of that relief is then met by the Scottish Government. This allows councils to gain additional funding from the Scottish Government outwith the usual funding arrangements, a fact that was acknowledged by councils themselves as one of the primary reasons they put services into ALEO status in the first place. This is tax avoidance and should cease.

4.117 The current arrangements have created arguably unfair distinctions between councils - some of whom do not have a large number of ALEOs and will be paying significantly higher rates bills than councils which have already established ALEOs. They also create unfair competition between the public and private sectors. For example, rate-paying private gyms and leisure facilities will compete with ALEO facilities that do not pay rates (or receive a significantly reduced bill). Other ALEO facilities offer cafes, retail outlets, venue hire etc. all of which have been given an unfair advantage compared to private sector businesses offering the same or very similar services. On the grounds of fairness, we believe there should be a 'level playing field' and council ALEOs should no longer be able to abuse the system.

4.118 As there would be scope for some of the ALEO charitable relief to switch over to sports relief and reduce the savings generated, we also recommend that eligibility for Sports Club relief for ALEOs should also be removed.

4.119 These changes require primary legislation to be implemented in full, but in the interim the local government funding mechanism should be adjusted to recoup the estimated £45 million of ALEO funding. These administrative arrangements should apply from 1 April 2018.

4.120 Independent (private) schools that are charities also benefit from reduced or zero rates bills, whereas council (state) schools do not qualify and generally will pay rates. This is unfair and that inequality should end by removing eligibility for charity relief from all independent schools. They will of course still retain charitable status and other benefits will continue to flow to them from that status. And Independent special schools will be eligible for disability rates relief where they qualify for this.

4.121 Universities are also charities and able to claim charity relief. The core functions of universities including education and research and development should continue to be eligible for charitable relief to reflect their key role in supporting economic growth through education of the workforce and supporting innovation.

4.122 University residential properties, when occupied by students during term time, are not liable for council tax. However, universities may rent out halls of residence or self-catering flats commercially outside of term times. For those periods they compete with nearby hotels and hospitality businesses but without paying rates. Again, for fairness and equity, these commercial elements of the university should be liable for rates where they compete with the private sector. This should also be the case for commercial activities such as renting out venues for conferences and other functions. In cases where a property is multi-use, the relief applied to educational or research and development should be set pro-rata to the number of whole day equivalents per year the property is used for those functions. For example where a property is used for commercial activities for a quarter of the year, the amount of charity relief awarded should be reduced by the same proportion.

4.123 Similar principles should apply when private student accommodation is let outside of term time to compete with local hotels and other accommodation providers to ensure a level playing field. Indeed we consider more general exploration of the taxes paid by student accommodation is merited. For example, consideration should be given to the rules that apply for other taxes, such as Land and Buildings Transaction Tax where different rules apply once six properties are owned by the same individual or entity.

4.124 The Group appreciates that the recommendations in this section may be controversial. However, there is precedent elsewhere in the UK. In Northern Ireland, the established position is that certain educational, cultural and public sector bodies are prohibited from receiving charitable relief.

4.125 In each case, it will be for the Scottish Government to decide whether to implement the recommendations in this section at once or to adopt a phased approach over possibly a number of years. Clearly, a phased removal of these reliefs would reduce the savings to be made which could not then be diverted to introducing measures which support both public and private sectors equally and have the potential to grow the economy.

4.126 For the avoidance of doubt, removal of charitable status for any organisation is outwith the scope of this review and does not form part of this recommendation. All the organisations involved will of course continue to recieve wider benefits of charitable status such as gift aid or differential VAT treatment. The vast majority of OSCR registered charities will see no change from this reform.

Savings. Based on the information available to the Review group, we estimate that these measures combined will save at least £50 million per year (of which around £45 million will come from ALEOs and around £5 million from independent schools). For ALEOs this £45 million reduction will no longer receive should be put into the context of the over £10.4 billion councils receive in total funding from the Scottish Government. As university student accommodation properties are not currently valued for non-domestic purposes, it is not currently possible to estimate the revenue that might be raised from that sector but we assess that it is unlikely to be more than from independent schools.

Implementation. These changes require primary legislation so are longer term options. However for ALEOs the Scottish Government could cut each council budget by the appropriate amount from 1 April 2018 to realise those savings (£45 million) more quickly and allow them to be redistributed to other ratepayers.

25. To focus relief on economically active properties, only properties in active occupation should be entitled.

4.127 It was suggested to us that a well‑known avoidance tactic to reduce liability when a property is empty is to occupy only a small part of the property for storage to either qualify for another relief or to allow a new period of empty relief to begin after a set period (this occupation may be limited to just one bag of goods donated for charitable purposes or a pallet of stored goods).

4.128 With the exception of empty property relief, we therefore recommend a change to stipulate that, to qualify for any relief, it must be demonstrated that over 51% of the area of the property is in active use (not vacant) throughout a year.

4.129 The main savings generated by this measure will come from empty properties currently receiving Small Business Bonus Scheme ( SBBS) relief - although a significant amount would be generated from Charity relief as well. Recently the Scottish Government has reduced the levels of empty property relief with an aim of encouraging these properties to come back into use. However, currently where a low rateable value property is empty the owner may be entitled to claim 100% SBBS relief, rather than the less generous empty property relief. In that case there is no incentive through the rates system to bring the property back into use.

4.130 We believe that rates paid by all empty property should be the same, regardless of whether the property is large or small and the option for a lower rateable value property to claim SBBS should be removed. In addition, there will be some empty properties that were previously occupied by charities who would cease to benefit from charitable relief. A smaller element of savings will come from empty property that was previously occupied by charities, but is now vacant. That change will likely require primary legislation so cannot come into force until 2020-21.

4.131 The expansion of Fresh Start relief (recommendation number 5) will increase the incentive to occupy empty property.

4.132 This reform will increase fairness and encourage owners of small empty properties to bring these back into use and dis-incentivise certain types of avoidance.

Savings. Savings of £12 million (£7 million from empty properties getting SBBS and £5 million from empty properties getting other relief, including charity relief).

Implementation. The removal of SBBS from empty properties should be able to be carried out with a simple addition to the application form to confirm that the property is in active use and is not vacant. Changes to charity relief entitlement will require primary legislation.

26. To encourage bringing empty property back into economic use, relief should be reformed to restrict relief for listed buildings to a maximum of 2 years and the rates liability for property that has been empty for significant periods should be increased.

4.133 Currently listed property receives 100% relief for the entire period it is empty, which is in contrast to non-listed property which receives at most 6 months relief (in the case of industrial property) and 10% thereafter.

4.134 While we believe that empty listed property does merit special treatment we are not of the view that this should be for an indefinite period and recommend that 100% relief for listed properties should last for a period of 2 years, with 10% relief available thereafter. This is summarised in Table 7.

Table 7 - Empty property relief summary.

Current Position
Type of property	Relief from 0-3 months	Relief from 3-6 months	Relief after 6 months
Standard property e.g. shops/ office	3 months of 50% relief ( i.e. half rates due)	10% ( i.e. 90% of bill due)	10 % relief for as long as property is empty ( i.e. 90% of bill due)
Industrial property	100% relief	100%
Listed	100% relief	100%	100%
Other*	100% relief	100%	100%

Recommended Position
Type of property	Relief from 0-3 months	Relief from 3-24 months	Relief after 2 years	After 5 years
Standard property e.g. shops/ office	No change			Surcharge of 10% ( i.e. 110% rates due)
Industrial property
Listed	100%	100%	10 % relief for as long as property is empty ( i.e. 90% of bill due)
Other*	No change

* includes low rateable value property, property prohibited from occupation.

4.135 Moreover, where empty property of any type has been empty for a significant period we believe more action is needed to encourage the property back into use or for the owner to consider alternative uses, for example conversion into housing or community use. Where a property has been vacant for over 5 years the rates liability should be increased to encourage the owner to better utilise the property and be liable to pay a supplementary rate of 10% on the applicable poundage at that point in time.

4.136 The 2 year period should begin on 1 April 2018, meaning currently empty listed property will have until 1 April 2020 before relief is reduced. All ratepayers responsible for empty property will have until at least 2023 before a surcharge is introduced.

4.137 Combined with our recommendation number 5 on fresh start relief expansion, this package provides incentives to both landlords to get both listed and non listed properties back into economic use and new occupiers to occupy these.

Savings. This will lead to increases in income of up to £15 million.

Implementation. This is a medium term measure to allow owners of currently empty listed property 2 years to prepare for the change.

27. Sports Club relief should be reviewed to ensure it supports affordable community-based facilities, rather than members clubs with significant assets which do not require relief.

4.138 The tax position with sports facilities in Scotland is very mixed and needs to be looked at in more detail. While we fully support the retention of Sports Club relief for local community sports facilities we do not believe that this relief is supporting only those that the Government intends.

4.139 Some examples we came across which we would not have expected to recieve relief of this type included two of the most prestigious golf clubs in the country which were awarded over £144,000 and £75,000 worth of relief respectively in 2015 by the council concerned. We do not believe properties of this type are the intended recipient and the Government should look to review the recipients of this relief and reform the relief accordingly, possibly by merging it with the Small Business Bonus Scheme to ensure local community facilities remain supported. It is also worth noting that many smaller sports facilities would be eligible for small business bonus relief and this may be a more appropriate vehicle.

4.140 We believe the costs of this relief (currently accounting for around £10 million to £15 million of revenues foregone) could be reduced by around £3 million per year whilst still retaining relief for those vital community sports facilities who we believe are the intended recipients.

Savings This will save around £3 million per year.

Implementation. This will require primary legislative changes that can be introduced in the longer term.

28. All property should be entered on the valuation roll (except public infrastructure such as roads, bridges, sewers or domestic use) and current exemptions should be replaced by a 100% relief to improve transparency.

4.141 Currently many types of property are exempt from valuation and rating. This means that these properties are not valued, and do not appear on the valuation roll. The financial benefit to those concerned is unknown. The resulting lack of transparency is unfair on other ratepayers.

4.142 Currently the following property types are exempt from inclusion on the valuation roll:-

a) Domestic dwellings

b) Foreign military bases

c) Embassies, Consulates, trade missions

d) Public roads, bridges

e) Sewers

f) Public parks

g) Agricultural land and buildings

h) Fish farms/ fishing

i) Bee keeping

j) Forestry/ woodlands

k) Microgeneration plant and machinery - up to 50 KW renewable generation (45 KW for CHP)

l) Rural ATMs

m) Offshore premises (including pipelines)

4.143 There is no proposal to value exemptions for domestic property (which is valued separately and makes its own contribution to local services through payment of council tax) or for those properties where exemption is part of international treaties (Embassies, foreign military bases). Public infrastructure and facilities such as roads, sewers, bridges and parks should remain exempt as there is limited gain from valuing them.

4.144 For fairness and transparency, we recommend that other non-domestic property in Scotland should be added onto the valuation roll. Each property in the previously exempt categories (with a few minor exceptions) should then receive 100% relief, so there is no financial impact on them. This will give a more complete picture of all property in Scotland and the financial benefit that they receive from Government can be quantified and understood by other ratepayers.

4.145 In the example of agricultural land, this will also support diversification. Currently any non-agricultural venture taking over an exempt property will have no information available to enable an estimation of the likely rates bill to determine viability of the potential business. Once the property is on the valuation roll, the rateable value will be readily known and so a rates bill will be able to be estimated. The public will also become aware of the tax payer subsidy to the industry.

4.146 We should be clear that there is no proposal to tax agricultural land or any other previously exempt property with the exceptions listed below in recommendations 29 and 30.

4.147 We appreciate that this represents a significant job for Assessors. Wider powers of information collection in recommendation 13 and exploration of new data sharing agreements with others in the public sector may help in this task - for example Scottish Water may already hold billing information for some of these properties.

Cost. This will carry an additional resource cost for Assessors and it is not possible to quantify the extent of this cost without entering into detailed discussions with the Assessors. This recommendation will carry no financial cost for those sectors currently exempt.

Implementation. This is a long term measure as primary legislation is required to remove the exemption and there is a significant administrative role for the Assessors in identifying and valuing all currently exempt property. It is therefore proposed that this is done in time for the 2025 revaluation.

29. Large scale commercial processing on agricultural land should pay the same level of rates as similar activity elsewhere for fairness.

4.148 Currently, where commercial activity such as food processing or animal feed manufacture takes place this is liable for rates, except when the same activity take place on agricultural land in which case it is exempt. This creates a disparity in the tax paid for manufacturing of similar or identical products, based purely on location of the plant.

4.149 This distinction should be removed so that such commercial activities are liable for rates regardless of the location of the activity.

4.150 Our intention is that only mass commercial processing for consumption off site should be captured where this could reasonably take place elsewhere. For example, we would not expect a dairy milking cows to be captured by this, but we would expect a factory producing processed chicken products to be so. We appreciate that agricultural processing covers a spectrum of activity and recommend that the precise definition of the type of processes captured should be determined in consultation with the agricultural sector and that this should be reviewed after 5 years.

Savings. This will save money by raising a small amount of rates revenue. It will also remove the unfair advantage of those who process food on farmland compared to those who carry out such processing activity on land that is not farmland. Because agricultural land is currently exempt from non-domestic rates and is not valued, it is nether possible to quantify the number of exempt properties or the cost of the exemption as income forgone. We believe that £2 million is a reasonable and conservative estimate of the potential savings of this measure. For example, assuming 40 such plants in Scotland, each with an average rateable value of £100,000, we assess that this could raise approx £2 million per year.

There will be an additional resource cost for Assessors and it is not possible to quantify the extent of those costs without entering into detailed discussions with the Assessors.

Implementation. This is a long term measure as primary legislation is required to remove the exemption and there is an administrative role for the Assessors in identifying and valuing all currently exempt property.

30. Commercial activity on current exempt parks and Local Authority (council) land vested in recreation should pay the same level of rates as similar activity elsewhere so as to ensure fairness.

4.151 Currently all public parks are exempt from rating and there are no plans to change this, except where commercial activity takes place. As an example, the multiple St Andrews Links courses are exempt from rates because the land is classed as a public park, whereas many other golf courses are rated (although many receive sports club relief, which is dealt with in recommendation 27).

4.152 Similarly, cafes and property on park land in which other commercial activity takes place should be rated. Where there is limited seasonal use this should be reflected in the valuation. Parks themselves though should not be liable for rates.

4.153 A separate exemption exits for land vested by the local authority (council) in recreational facilities, which so far as we can assess exempts only 2 properties in Scotland (Midlothian ski centre at Hillend and a tennis club in Aberdeen). Those facilities are arguably able to compete unfairly with other leisure properties in Scotland and therefore we also recommend removing these inconsistencies.

Savings. Because this type of property is exempt and is not valued it is neither possible to quantify the number of exempt properties, or the cost of the exemption as income forgone. We believe that £1.5 million is a reasonable and conservative estimate of the potential savings of this measure. For example, assuming that commercial facilities in parks may have an average rateable value of £20,000 and there are 5 such properties in each of the 32 council areas, this could raise around £1.5 million per annum.

There will be an additional resource cost for Assessors and it is not possible to quantify the extent of that cost without entering into detailed discussions with the Assessors.

Implementation. This is a long term measure as primary legislation is required to remove the exemption and there is an administrative roll for the Assessors in identifying and valuing all currently exempt property.